The Benefits of Federal Student Loans [And Why It Matters]

Education is essential in life but it can come at a cost. If the government doesn’t provide opportunities for education, a lot of people can find it hard or even almost impossible to be educated.

More than scholarships and grants, the government offers student loans for people to be able to afford getting into college. There are different types of student loans and government two general types of student loans:

  1. Federal student loans
  2. Private student loans

Most people opt for federal student loans. Right now, America has over $1.6 trillion total student loan debt. According to a 2018 report by MeasureOne, 92% of all student loan debt is federal student loans.

This is because not all student loans are the same. Most people apply for federal student loans because of the benefits. It’s important for you to know all of these benefits for you to better understand the concept of federal student loans and how federal student loans can better serve you. 

If you’re having second thoughts whether to apply for federal student loans or private student loans, here’s everything you need to know about the benefits of federal student loans:

Good Credit is Not a Requirement

Private student loans require credit history. The problem with this is that most undergrads still have a short credit history or have low credit scores. This is one of the main reasons why undergrads apply for federal student loans instead.

Lending institutions treat private student loans the same way they do other types of installment loans. With low credit scores and short credit history, it’s harder to be approved for private student loans.

Federal student loans don’t require credit history. As long as the applicants are enrolled undergraduates, they are able to apply for federal student loans. Moreover, you also don’t need good credit to consolidate federal student loans. 

Federal consolidation allows you to have even more benefits such as public service loan forgiveness and income-driven repayment plans. 

Co-signer is Not Needed

The purpose of a co-signer is for someone to be accountable for paying the student loans if the student can’t. Private student loans require a co-signer but with private student loans, you can pay lower interest rates. 

Federal student loans don’t require a co-signer. This is because federal student loans are not credit-based. This makes it easier for students to apply for a student loan as they are not required to have someone else to be accountable in the instance that they can’t pay for their student loan debt. 

More Time to Pay

You can have more time to pay federal student loan through deferment. This is when a person is unable to pay due to financial struggle. Payment of student loan debt can be postponed for up to three years.

Private student loans don’t offer you the same flexibility. In times of a financial crisis, it can be less stressful to have federal student loan debt than private student loan debt.

Federal Student Loans are More Forgiving

There are more forgiveness options with federal student loans. With federal student loans, you can opt for an income-driven repayment plan.

This option allows you to pay off your federal student loan debt based on your income and family size. 

Here are different types of income-driven repayment plans:

  • Income-Based Repayment (IBR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)
  • Income-Contingent Repayment (ICR)

Loan Cancellation on Death

If you have a spouse and loan debt, if you happen to die, your spouse will be liable for the debt.

This can cause a lot of worries and problems for your spouse. According to ABC News, “if you live in a community property state and your spouse dies, you’re typically liable for your spouse’s debt, regardless of whether your name was on the original loan or not.”

However, it’s different with student loans. The liability of the spouse will depend on the type of student loans that you had.

If it so happens that you die and you had federal student loans, your loans are cancelled and your debt will be discharged. Your spouse won’t be liable for repayment.

However, with private student loans, depending on the lender’s policies, your spouse can be liable for repayment if you die. It’s ideal to always check for death discharge protection.

Are Federal Student Loans RIght for You?

While federal student loans do offer great benefits, so does private student loans. You need to weigh which of the two is ideal for you.

To summarize, here are but some of the benefits of federal student loans:

  1. Good credit is not required
  2. Co-signer is not needed.
  3. More time to pay.
  4. Federal student loans are more forgiving.
  5. Loan cancellation on death.

Private student loans are great as you can pay lower interest. However, it’s more difficult to get approved for them. Moreover, private student loans are also less flexible than federal student loans in terms of repayment options.

Meanwhile, all enrolled undergraduate students can apply for federal student loans and get approved. Good credit history is not required plus it’s the more forgiving option.

Remember the benefits of federal student loans that we’ve shared with you so you can make better decisions when applying for student loans.